Argentine Senate Passes Bill To Put Debt Outside U.S. Reach

A woman
looks at a sign with a drawing of a vulture during a rally
against the payment to what the government calls "vulture"
creditors in Buenos AiresThomson
Reuters

By Hugh Bronstein

BUENOS AIRES (Reuters) - Argentina's Senate on Thursday passed a
bill aimed at circumventing U.S. court decisions regarding its
defaulted debt by changing payment jurisdiction, sending the
proposal to the lower house Chamber of Deputies for final
approval.

The chamber, like the Senate, is controlled by government allies
who are expected to vote the bill into law. Debate in the lower
chamber is set to start next week. The Senate vote approving the
measure was 39 to 27.

President Cristina Fernandez wants to resume servicing sovereign
bonds that were restructured after Argentina's previous default
in 2002. Her government missed a coupon payment on its
restructured bonds in July, thrusting the South American country
into default.

The proposed law, which says that foreign debt can be paid
through intermediaries outside the United States, is Fernandez's
attempt at getting back on a paying basis by putting government
debt out of reach of U.S. courts that have jurisdiction over some
of the original bond contracts.

The bill would replace Bank of New York Mellon with
state-controlled bank Banco Nacion as trustee for bond payments.
It would also allow holders of restructured bonds governed by
foreign law to swap them for paper governed by Argentine law.

Both moves would be in violation of U.S. court orders.

U.S. District Judge Thomas Griesa in New York banned Argentina
from making interest payments on restructured debt until it
settles with a group of hedge funds who rejected restructurings
in 2005 and 2010 and are suing for full payment.

Griesa ordered Argentina to pay the funds $1.3 billion plus
interest. Argentina says to do so would trigger additional
demands from holdout investors and wreck the country's finances.

"Sometimes there are court decisions that cannot be followed,"
said Miguel Angel Pichetto, head of the government's Frente para
la Victoria coalition in the Senate. "To pay the vulture funds
would be very dangerous."

The bill is expected to become law before Sept. 30, when the next
payment on Argentina's restructured bonds is due.

Investors stuck with more than 93 percent of Argentina's
defaulted bonds agreed to the 2005 and 2010 restructurings,
walking away with less than 30 cents on the dollar.

A small number of the roughly 7 percent of investors who declined
to participate in the 2005 and 2010 bond swaps sued for 100
percent repayment. They won favorable U.S. court rulings that
have forced Argentina into its second default in 12 years.

The funds that went to court are led by Elliott Capital
Management and Aurelius Capital Management, two major players in
the specialized realm of distressed debt investing. Their
business involves buying up the bonds of troubled lenders for
pennies on the dollar and then pushing to negotiate for
profitable payments, sometimes through the courts.

Finance Secretary Pablo Lopez is in New York this week meeting
with fund managers, Thomson Reuters' IFR reported. There were no
reports of him meeting with funds involved in the case, nor with
court-appointed mediator Daniel Pollack.

"We would have welcomed the opportunity but there doesn't seem to
be any interest in engaging in discussions with us," said Robert
Cohen, a lawyer for Elliott unit NML Capital.

Cohen spoke with reporters on a conference call about a probe
into what court documents describe as 123 shell companies
registered in Nevada. Elliott suspects the companies are hiding
$65 million in embezzled Argentine assets.

The lawyer called the debt jurisdiction bill "a blatant violation
of the court's orders."

Argentina, in need of cash to develop its promising Vaca Muerta
shale oil and gas formation in Patagonia, will remain unable to
issue new bonds on the international market until the case is
settled.